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SUMMARY:Government Guarantees and Financial Stability - Carletti\, E (Univ
 ersit Bocconi)
DTSTART:20140826T151500Z
DTEND:20140826T154500Z
UID:TALK53867@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Joint with F. Allen\, I. Goldstein\, and A. Leonello\n\nWe ana
 lyze the trade-offs involved in the introduction of government guarantees 
 in a context where panic and fundamental crises can occur\, and both banks
 ' and depositors' decisions are endogenously determined. A scheme against 
 bank illiquidity eliminates panic runs and does not entail any disbursemen
 t for the government. By contrast\, a scheme protecting depositors also ag
 ainst bank insolvency entails a disbursement for the government and leads 
 to distortions both in the bank's choice of the optimal deposit contract a
 nd in government's choice of the optimal guarantees. Yet\, we show that th
 e latter scheme may achieve higher social welfare since it reduces signifi
 cantly the probability of runs.\n
LOCATION:Seminar Room 1\, Newton Institute
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